Billionaire Warren Buffett could win $2 million thanks to a bet he made 10 years ago

Warren Buffett is worth $75 billion but says he would be 'very happy' with way less
Warren Buffett is worth $75 billion but says he would be 'very happy' with way less

Warren Buffett has made billions thanks to his ability to bet successfully on investments over the years. Now, it looks like he's about to win $2 million more.

In 2007, Buffett made a bet that the S&P 500 stock index would outperform hedge funds, which he describes in a 2016 letter to Berkshire Hathaway shareholders. He argues that over a period of time, active investment management by professionals would underperform the returns by amateurs who were passively investing.

Buffett publicly wagered $500,000 and suggested a 10-year bet. "I then sat back and waited expectantly for a parade of fund managers ... to come forth and defend their occupation," Buffett writes in the letter. "After all, these managers urged others to bet billions on their abilities. Why should they fear putting a little of their own money on the line?"

Only one person, however, took the bet, according to the 2016 letter: Ted Seides, a former co-manager of Protégé Partners, a specialized asset management and advisory firm. In a Bloomberg post, Seides says that the two agreed to the wager, which pitted low-cost S&P 500 index fund returns against a group of Protégé's handpicked hedge funds.

Warren Buffett
David A. Grogan | CNBC

In an emailed statement to CNBC Make It, Buffett's secretary, Debbie Bosanek, confirmed the news of his win. "I checked with Mr. Buffett and he told me that it's absolutely certain that he will win the bet, although it won't be official until January," she writes. "The money will go to Girls Inc. and it looks like it will be $2 million or so."

The pot was originally $1 million, but several years ago the money was put into Berkshire Hathaway stock. That stock is now worth an estimated $1.7 million.

The name of the hedge funds selected by Seides for his side of the bet were not disclosed. The basic terms of the bet are public.

By the end of the bet on Dec. 31, $1 million invested in the funds chosen by Seides would have gained $220,000 in the same time period that Buffett's low-fee investment would have earned $854,000.

Buffett's index investment bet is so far ahead of Seides' that the hedge fund manager surrendered the wager in May.

"For all intents and purposes, the game is over. I lost," Seides wrote in the Bloomberg post. Seides gives a multitude of reasons for why he lost, including that "passive investing is all the rage today and the S&P 500 is the most popular index."

There's a silver lining to the decade-long bet: The money will go to the charity Girls Inc. of Omaha, Nebraska, which inspires young girls to be "strong, smart, and bold" through direct service and advocacy.

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See also:

Warren Buffett bought his first stock at 11
Warren Buffett bought his first stock at 11

This story has been updated.